Why, in the world, would you buy in Sydney?
Sydney's property market has moved into a correction, but structural housing shortages and rental demand are helping prevent the kind of sharp collapse seen as a risk in some major global cities.
Sydney’s boom has certainly ended but as property bubbles go, the Harbour City is far from the worst longer-term prospect in the world.
While it may come as little comfort to those who bought in the News South Wales capital in the past year or two, there are numerous cities around the world more precariously placed in terms of the property bubble truly bursting, as opposed to easing.
Sydney dwelling prices remain just 6 per cent below the 2022 peak, with multiple key fundamentals working to keep prices from bursting at a rate that other major global cities are potentially confronting.
The UBS Global Real Estate Bubble Index 2026 report, released Wednesday (23 September), describes Sydney’s property market as being at moderate risk of a property bubble and subsequent ‘pop’.
The report found Zurich and Tokyo are the only two cities facing high housing bubble risk, while elevated risk levels are evident in Miami, Dubai, Seoul, Lisbon and Geneva.
Risk levels were seen to be ‘moderate’ in Sydney, which was grouped with Los Angeles, Singapore, Hong Kong, Vancouver and Toronto. In Europe, Milan, Madrid, Frankfurt, and Munich also fall into the moderate-risk category. According to the index, London and Paris face low bubble risk. Outside Europe, New York, San Francisco, and São Paulo are classified in the same category.
For the doomsayers predicting an imminent property market collapse that engulfs Sydney, UBS’ report authors, Claudio Saputelli, Head Swiss and Global Real Estate, and Matthias Holzhey, Senior Real Estate Economist, offered a more tempered outlook.
“Since mid-2025, inflation-adjusted house prices have fallen by 4 per cent as further rate hikes have eroded buyers’ affordability (and) the abolition of capital gains tax discounts is also weakening demand.
“Nevertheless, prices remain … supported by a structural housing shortage. Immigration, although slowing, continues to underpin demand in the rental market, while rental reforms have moderated rent growth.”
While playing down the chances of a major price correction from the ‘bubbly’ highs of four years ago, UBS also suggested an imminent return to growth was not likely.
“Without significant rate cuts, the scope for a meaningful housing recovery remains limited.”
Those interest rate cuts won’t be landing any time soon. As of this week, all of the ‘big four’ banks are now forecasting a rate rise on 29 September and few observers have ruled out the prospect of another one before the year is out.
Is it time to reconsider buying in Sydney?
Falling Sydney prices may create the impression that buying opportunities are emerging.
That’s not necessarily the case now. The more compelling opportunities tend to occur when several fundamentals line up, including affordability, supply, buyer and tenant demand, population growth, economic conditions and longer-term housing needs.
Sydney’s relatively high property prices mean investors also generally need greater borrowing capacity to enter the market, which can place additional pressure on cash flow and make portfolio diversification more difficult.
Sydney is far from alone in pricing out its own populace.
Buying a 60-square-meter (650-square-foot) apartment is beyond the reach of the average skilled service worker in most global cities.
The UBS report noted that Hong Kong remains the least affordable market, requiring around 15 years of average income to purchase such a home, while Sydney is closer to eight years.
“Housing prices are disconnected from local earnings in Tokyo, Paris, London, and Seoul, where price-to-income ratios exceed ten years.
“Affordability is also stretched in Sydney, Singapore, Lisbon, Zurich, Geneva, São Paulo, Munich, Milan and New York, where local wages are insufficient to support home ownership.
“At current borrowing costs, prevailing price levels appear increasingly difficult to sustain, particularly in New York, Sydney, Sao Paulo, and London.”
Falls expected across the board
Not all Sydney suburbs have declined over the past 12 months but in the year ahead there appears to be few safe bets.
At the lower end of the market Colyton is up 10 per cent ($1.15m median house price), Hebersham (median house price $972,000), Blackett ($880,000) and Tregear ($890,000) are all up 7 per cent.
At the top end, 8 per cent gains have been notched up in Bondi Beach ($4.5m) and Paddington ($3.2m).
Theo Chambers, CEO, Shore Financial, said those gains are about to be eaten into, at least in the near-term.
According to their recently published Shore Financial State of Sydney Report nowhere will there be gains in the coming six months.
Bondi Beach and Paddington are forecast to slide 3 to 4 per cent, while other high-end suburbs such as Crows Nest, Neutral Bay and Cammeray could tumble 5 to 6 per cent.
In the $1.5 million to $2 million zone, Petersham (already down 10 per cent for the year) could see another 4 to 5 per cent hit, while Hornsby Heights, Engadine and Normanhurst are potentially confronting 5 to 6 per cent falls.
The lowest priced quintile of the market is broadly tipped to retreat just 1 to 2 per cent in that six month period.
“While house prices are easing across most of Sydney due to rising interest rates and weaker borrowing capacity, the city’s more affordable suburbs, where limited supply and high owner-occupier rates help offset falls, are proving unusually resilient,” Mr Chambers said.
“With inflation cooling and unemployment ticking up, rates could start falling in 2027, at which point I expects these affordable, higher-yielding areas to be among the first to recover.”
